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Guidance Released on Coordination of Health FSA Carryover with HSAs; FSA Correction Procedures

March 2017

On March 28, 2014, the Internal Revenue Service's (IRS) Office of Chief Counsel released two memoranda that provide guidance on certain administrative issues affecting employers that sponsor health flexible spending arrangements (health FSAs).

Memorandum number 201413005 provides guidance on various issues relating to the $500 health FSA carryover and its effect on employees' health savings account (HSA) eligibility. The memorandum addresses several issues including the transfer of funds from a "general purpose" health FSA to a "limited purpose" health FSA for employees who wish to establish an HSA after participating in a health FSA the prior year.

Memorandum number 201413006 addresses common issues associated with health FSA claim substantiation requirements. Notably, it clarifies that Form W-2 (rather than Form 1099) is the correct form on which to report improper payments to an employee that the employer treats as includible in the employee's income.

To learn more about the impact of this and other health care reform decisions, please visit Peel & Holland University, where we have posted a document titled Guidance Released on Coordination of Health FSA Carryover with HSAs; FSA Correction Procedures.

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